How to Earn Passive Income from Your Crypto — Decentralized Finance
Hi Crypto Network,
With the world of crypto currencies growing and developing we explore how decentralized finance could be the key to passive income!
How to Earn Passive Income from Your Crypto — Decentralized Finance
Passive income generation is what you do to make money while also making money. It is not called passive income because it does not require a lot of input but the thing is that passive income requires you to work smart and do the proper groundwork before setting up.
Decentralized Finance, Explained
Decentralized Finance also known as DeFi is a new monetary system that is built on a blockchain system. This is an open-source and vast network that allows anyone to create applications that enable financial activities to take place without the interference of centralized monetary institutions. Most of the public know about Bitcoin and Ethereum as cryptocurrencies but truth is, they are networks within the blockchain. They are crypted currencies.
A decentralized finance system came into place when it was realized that a huge global population lacked access to financial services and even though there are plenty of financial institutions, the common man does not reap many benefits from them.
With decentralization, there is no point of failure since identical records are stored in thousands of computers within the peer to peer network. This network is open to anyone regardless of class, job nature, wealth or where they are located, unlike a bank account that can be scrutiny to censorship or closing.
At the core of decentralization are decentralized applications also known as DApps. They are mainly accessed via mobile gadgets and offer access to financial services at lower costs.
Decentralized Finance: 5 Things You Should Know About DeFi
If you are interested in cryptocurrencies then you should know the following:
- Decentralized Finance Is Powered by Peer to Peer Lending (P2P) — The current financial system has given banks the upper hand so all transactions go there. This results in the inflation of costs since banks have to make a profit. The decentralized financial system uses peer to peer technology that connects participants directly and here their creditworthiness is verified minus paperwork and red tape excuses.
- Decentralized Finance Is Less Volatile as compared ‘Regular’ Money — Regular or fiat currencies are susceptible to volatility and inflation. Banks and financial regulators come up with fiscal policies that affect everyone. With a decentralized system, people are free to issue their own money. The tokens and crypto coins are simply an expression of your creditworthiness. The coins are created via computational power and are not susceptible to abuse or manipulation.
- Decentralized Finance Is Safer and More Transparent -The blockchain is an immutable public ledger meaning it contains information about the type and nature of transactions that participants engage in. This is what makes the cryptocurrency-based economy more secure and a bit difficult to defraud. Even if a node in the network fails, everything else in the network still remains intact.Decentralized Finance is Cheaper — The banking financial system requires fees during transactions and verification is usually via third party services hence increasing the fee cost. Decentralized systems are cheaper because the transparent nature of the blockchain renders third-party remittance services obsolete.
- Decentralized Finance Has Exposed Traditional Lending -Banks make money by lending out your savings for interest. The unfortunate part is that most bank savers are denied loans by the same banks and if they get approved for one then the consequences of defaulting are quite devastating.
The crypto world is offering solutions with cryptocurrency exchanges building margin lending services for their clients.
How Blockchain is Changing Money Transfers
Banking service providers provide online or mobile banking services where the funds support the operational costs of these systems but they are not offering innovative solutions. Banks wait for technology’s next innovation and weigh the risk before embracing it. Blockchain, on the other hand, is getting the attention of several key players who know that once blockchain reaches its peak, it will have a major effect on the financial system and here is how:
The blockchain technology eliminates the need for third-party intermediaries to approve transactions. Payments speeds are up and at lower rates than those offered by traditional banking institutions.
Companies have quick access to liquidity through the ICOs hence having a new and easy way to fundraise thanks to the new crypto-economic financing model.
Securities are offered as tokens hence strengthening the capital market structure.
Since there are no credit intermediaries, borrowing money is safer and done at lower interest rates. The P2P has zero intermediaries. This allows users to send and receive money fast, cheaply and unrestricted.
What’s behind the buzz about decentralized finance
Many people are excited about decentralized finance and why not? Startups and companies have seen the potential of open-source networks and their permissionless nature. It is highly possible that the blockchain will replace the current traditional financial system. People have been demanding better financial services and if a better option has come and it surely has, they will take it. If it has gotten the regulators and the banks looking for ways to stem it out then blockchain has definitely blocked the loopholes that traditional financial services have been “ eating” from.
Top 5 decentralized Finance applications
As mentioned earlier, decentralized systems are run by DApps. Here are the top five.
This is a Santa Cruz, California based company with over 260 million associated with its smart contract. Seen as the most important DeFi project, its utility token, MKR is dependent on market trends
This is a Coinbase project in partnership with Andreessen Horowitz. This is also a DeFi project that allows developers to create autonomous and transparent money markets to enable users and apps to obtain loans or earn interest without depending on third parties. This project runs on Ethereum which makes Compound a liquidity pool for an entire market. Interest is algorithmically determined while interest rates are calculated according to the liquidity available.
This is a token exchange protocol that runs on an Ethereum blockchain. It was developed by Hayden Adams. Here, ETH is converted into ERC20 easily. This protocol is used via MetaMask and is also a DeFi project since there are no intermediaries. It has an exchange and a factory contract.
This is a bank of smart contracts and developer tools allowing users to borrow and lend crypto assets on the Ethereum blockchain. It currently supports USD Coin, DAI, and Ether. It facilitates P2P lending.
This is a smart contract that depends on a liquidity pool and not P2P. it has algorithmically set interest rates. dYdX supports ETH, DAI and USD Coin. It is initiated by a user sending a loan offer, a buy order and purchase amount to one of the platform’s smart contracts. The smart contract accepts the deposit and sends it to the decentralized exchange. The deposit is held until the trader decides to close the position resulting in the lender getting back the amount lent and profit.
Going Crypto Passive
- Now here is another way to earn passive income and increase your crypto holdings
Work with lending platforms. We have just mentioned some of the top crypto projects and some allow you to earn interest when you lend some of your digital assets.
- Lending bot services. These offer automated lending to margin traders on exchanges like bitfinex. Just send your crypto to the exchange and see what the bot does. You will, of course, have to create API or private keys. Interest will be paid in the same currency you lent and that is how you earn passive income in the crypto sector.
- Delegated Proof of Stake. You lend your power staking cryptocurrencies to a node in the blockchain. Your lent staking coins power ensures that you get a portion of the mining fees the node earns.
- Rewards. This is a services offer where you are able to earn crypto without buying and holding. It is a great way of reaching crypto newbies. You can earn crypto and then go to other platforms that offer interest on the lending.
There are several ways to earn passive income in the crypto world. The offers are reasonable and well paying. Simply select what works for you and get started on an income-generating activity.